Canary in the Oilfields is DEAD!

And by logical conclusion those sovereign states that rely on Oil income – have to now weigh up the options of continued borrowing or selling assets through their Sovereign Wealth Funds.

Sovereign Wealth Funds are big – huge – enormous in fact.

 

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Now whoever compiled this list at the Sovereign Wealth Fund Institute was somewhat optimistic – like $10 trillion by 2020.

I know this future figure is bullshit in the current and near future economic environment – and me thinks that those in control of the SWF’s know it is bullshit as well.

Being a realist SWF’s can invest anywhere – provided of course the investment is graded AAA – and as the SWF does not have any cost of capital the time horizon can be stretched a fair bit.

Except of course when one has to sell assets to supplement the ever decreasing deficiency in the host Country’s capital account.

Timing is everything – and what does not assist decisions is a deflationary environment, zero interest rate regime and extremely low oil price.

 

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Oil prices now are a burden – demand has dropped in line with global trade. All countries have excess supply – all reserves full.

One can borrow  – a la’ Saudi Arabia – but the deferral of asset sales has a profound affect on the Balance Sheet – assets – in this environment – are eroded through deflation and values – as defined by Demand and Supply.

Saudi Arabia is a big investor in Glencoe – commodities crash – values crash.

 

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Expect this to reduce even more over the coming 18 months.

Saudi Arabia now looking at selling a stake in their own infrastructure project Aramco – amazing what happens when expenses within the Government exceed available income.

If one was to invest in Aramco – how would one trust the House of Saud and current management?

Looking at the big picture if Saudi Arabia does not even care about human rights – then why would they care about shareholder rights?

Countries dependent on oil for income can offset the oil price decline by cutting interest rates – depreciating their currencies – but when every commodity reliant country is doing the same thing a problem arises.

Non-oil sectors take the slack?

Who planned this far ahead – who would have thought – that global demand would just die and that arse would drop out of all commodities?

Sovereign Wealth Funds were established to initiate investment in time of need – problem though – is the exorbitant cost to a socialist economy.

Investments globally are dropping more than expected

So the stage is set – asset sales from SWF’s of those oil producer nations.

What assets would be liquidated – or could be liquidated in this environment of zero interest rates – without disrupting the markets?

No guessing the answer – none – zilch.

China may have offloaded 30 year treasuries discreetly – in the first half of 2015 – but these funds have a different – more aware – marketplace to offload assets.

A highly volatile market.

  • Bonds – Sovereign Bonds
  • Equities – Dow / Dax / FTSE
  • Real Estate – Global
  • Precious Metals
  • Global Infrastructure

One presumes that global infrastructure has a long term horizon – bonds are subject to devaluation through the currency wars – then one has commodities – no demand no realistic price.

Now this gets interesting when one looks at equities – and yes a fair slice of SWF’s is invested in the global equity market.

So equities – Dow / Dax / FTSE / ASX / Nasdaq etal.

Obvious question – in even looking at the Swiss National Banks near ten percent investment in AAPL – how do they divest these shares at a fair price without upset the markets equilibrium?

Take Norway as an example – socialist country – high cost of population maintenance – interest rates near zero and currency devalued.

 

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Not pretty – liquidation of assets now required and one has a suspicion that other SWF’s will not acquire off market – as they are all in the same boat.

 

Note: Cash is king – volatility the key in all markets – there is a long way to go before we even see the bottom.

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A lot of people will be raiding the global piggy bank.

 

 

 

 

 

 

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